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Bitcoin mining uses more energy than Ecuador – but there’s a fix

Bitcoin: conspicuous consumption

Liu Xingzhe/Chinafile/EPA/REX/Shutterstock

By Abigail Beall

BITCOIN has an energy problem. The cryptocurrency, and the blockchain it runs on, have long been heralded as the future of financial transactions, replacing people with an array of number-crunching computers. But its energy expenditure is becoming clear just as the blockchain and cryptocurrencies are exploding into the mainstream.

That realisation has spawned a host of strange workarounds, from heaters that warm your home with the blockchain, to renewable mining. Now, the creator of one of the world’s biggest cryptocurrency networks has announced a major change to address the problem.

We have known for a while that bitcoin hogs energy. That is down to the way it works with the blockchain. Each transaction starts with a user broadcasting the details of that transaction to a network of linked computers, where it is duplicated in thousands of identical, unfalsifiable ledgers. “A blockchain, including bitcoin, has to operate on the assumption that no other computer can be trusted,” says Teunis Brosens, economic analyst at ING. So instead of trusting anything, each computer independently verifies part of the transaction, in a process called mining.

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Mining prevents computers creating fake ledgers. They need to show “proof of work”, a gruelling cryptographic puzzle that takes so much processing power that generating false entries becomes prohibitive.

All that processing guzzles a lot of electricity. That’s still peanuts compared with the energy use of the internet, but one recent estimate put the annual electricity consumption of bitcoin mining at 23.07 terawatt hours, roughly the amount of electricity used by Ecuador each year.

Some enterprising bitcoin miners have made space heaters that can turn all that processing into useful warmth. The Russian cryptocurrency start-up Comino is hoping to make a business of it. But that is not particularly scalable unless you’re a bitcoin miner in a cold country. Other ideas to mitigate the energy wastage include using solar and wind power to mine bitcoins.

The need to address the problem is pressing. If bitcoin were to suddenly double in popularity overnight, the network would consume the energy of 5 million US households.

The latest solution is a radical one: change the way blockchain works altogether. Vitalik Buterin, the creator of cryptocurrency network Ethereum, announced last month that he would adopt a completely different way of doing transactions, known as “proof of stake”.

He adds his voice to a chorus who think that instead of proving a computer is trustworthy by taking out a “proof of work”, they could vet themselves by placing a small amount of money into a fund, which they get back if the validation turns out to be authentic, says Brosens. In a similar way to proof of work, it is difficult for fraudsters to replicate.

But this approach could have serious downsides, says Brosens: proof of stake could lead to biases towards those with more money. But no one’s had a better idea yet. “In my opinion, the key really is to find ways of verification or mining that are less energy intensive,” he says.

This article appeared in print under the headline “Bitcoin energy bill matches Ecuador’s”